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Smart beta products facing transparency problems, investors say

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Investors are struggling to get important information about smart beta strategies, according to a survey by EDHEC-Risk Institute.

The research found there was an “important” gap between the information investors required to assess smart beta products and the ease of access to this information.

The survey – of 211 European investment professionals – found that a lack of transparency was the second most important hurdle to increasing smart beta investments for respondents, after “methodological issues” with smart beta strategies.

“The fact that information that is regarded as important is not considered to be easily available clearly calls into question the information provision practices of smart beta providers,” said the EDHEC-Risk Institute. “In fact, the only area in which no pronounced gap exists between the importance and the ease of accessibility scores is for performance numbers.

“Performance and risk information is judged to be moderately easily available and moderately important.”

Asked about the information they consider most important to assess smart beta, respondents said information about liquidity and capacity, index construction methodology, and transaction costs were important.

They were also asked how easy it was to obtain this information. The biggest gap between importance and accessibility of information was in relation to data-mining risk. This scored 3.59 in terms of importance (on a scale of 1 to 5, with 5 being “crucial”) and 2.06 in terms of ease of access (with 0 being difficult to obtain).

The second biggest gap between the importance of information and its ease of access was in relation to liquidity and capacity. Respondents deemed this the most important piece of information, with a score of 4, but scored it with 2.80 for ease of access.

IPE’s latest Top 400 Asset Managers report showed that Legal & General Investment Management was the leading manager of smart beta portfolios on behalf of European institutional clients is, with over €30bn of assets.

Robeco, BlackRock, and Insight Investment Management followed in the ranking of the largest European institutional smart beta managers, IPE’s proprietary research showed. The data was correct to the end of 2016.

In terms of exchange-traded funds, BlackRock was by far the largest manager with €253bn of assets managed for European institutions. Deutsche Asset Management was next, with more than €50bn, while Germany’s Assenagon Asset Management and France’s Amundi were in distant third and fourth place respectively.